GTA REAL ESTATE – If you have ever purchased a property in Ontario, you may have heard the term “conditional offer” when working with your sales representative or broker.
If so, you’re not alone – making a conditional offer is one of the most common practices in Greater Toronto real estate transactions. As long as they are effective and reasonable, adding conditions to your offer can be a great way to achieve some added peace of mind as a property buyer.
What do real estate sales representatives mean when they refer to “Conditions?”
When a real estate sales agent and the buyer he/she is representing decide to submit an “Agreement to Purchase” (also known as an “Offer”) on a listed Ontario property, that offer will often contain conditions. These are intended to ensure that the buyer is protected from unforeseen upsets that would complicate or prevent the sale, such as denial of a mortgage. The conditions must be met and fulfilled or waived within a set period – usually three to seven days.
Two types of conditions have become particularly commonplace in Ontario, and can be found in many offers to purchase property:
- The buyer is entitled to review the report of a professionally-conducted home inspection and may ask the Seller to resolve issues that are found, or seek remedies such as price reductions if problematic issues are discovered. Failing which, the Buyer is entitled to back out of the sale if a compromise cannot be achieved or they are not satisfied with the report.
- A financing condition allows the buyer to back out if he or she is unable to obtain enough financing (i.e. mortgage loans) from a lender, such as a bank.
When a condition is satisfied (for example, a suitable mortgage loan is granted by your bank) you cannot simply do nothing and wait for the condition period to expire – your real estate agent must notify the property seller ASAP that the condition has been fulfilled or waived. If this notice is delivered late (past the time period given in the condition), then the entire deal could be in jeopardy – even though the Buyer wishes to proceed! This is known as condition precedent and this is how most conditions are written to protect the Buyer.
Once all of the conditions have been waived, the agreement between the buyer and seller (known in Ontario as the “Agreement to Purchase and Sale”) can become “firm” – meaning the parties are bound by contract to complete the transaction.
Can Mortgage Lenders Add their Own Conditions in a Real Estate Transaction?
Yes, and in Ontario they often do. Their conditions will not show up in your Agreement to Purchase, but they can in some cases prevent you from getting the financing you need in order to continue with the transaction. For example, many offers contain a condition stating that the mortgage lender must be satisfied that the buyer’s agreed-upon price is equal to or lesser than the amount at which that lender’s appraisers have valued the home.
This is an important thing to keep in mind when deciding on a lender. Make sure you get a good idea of what the lender’s conditions are, and make absolutely sure that all of these conditions have been satisfied before waiving the financing condition in your offer.
Can the Seller or his/her Broker Retaliate if I Do Not Waive a Condition?
This is the sort of question we hear very often from Ontario home buyers, because these things happen. Perhaps the home inspection revealed property issues you are uncomfortable with, or your mortgage lender is unable to loan you the funds you need for the property.
The rule of thumb for Ontario is that no one can fault or successfully sue you for being unable to waive a condition, as long as you acted in good faith while trying to satisfy it. In fact, you are legally obligated to act in good faith while seeing to the conditions in your real estate transaction. If you have acted “in good faith” as a buyer, this means that you:
- Actively sought financing or home inspection (whichever the case may be).
- Had the consultation done by a finance or home inspection professional.
- Found yourself genuinely unable to waive the condition, based on the information that you uncovered.
A financing condition also legally obligates the buyer to act “in good faith” by actively seeking lenders and taking appropriate measures to secure financing as required.
For more information about conditional offers in Ontario, we recommend starting out with this Real Estate Magazine overview by OREA’s Mark Weisleder. However, the best advice on any real estate terminology will always come from a licensed Ontario real estate sales representative or broker – do not hesitate to get in touch with one if you have further questions.